Apartment developers cut corners to boost cash flows

As volumes in the real estate sector refuse to pick up, some apartment developers have slashed the average saleable area in Mumbai apartments. As a result, you now have homes that on the face of it look cheaper than the going rates in a particular area, but then in effect the size of the apartments have also shrunk.

A BSE-listed developer is selling a two-bedroom apartment for Rs 1.3 crore in Mumbai's north-western suburb of Andheri.

"The apartment has a carpet area of 550 sq ft, which is much less than normal two-bedroom properties," said a real estate broker. "So eventually the per sq ft rate ends up to be more than Rs 20,000 per square foot on carpet area."

Analysts say the recent reduction in size is also a result of a new state government rule.

"If you see at the carpet area, you would realise that it has remained more or less the same, just that many developers were projecting the super built-up area as a lot more,"said Pankaj Kapoor, managing director, Liases Foras, a real-estate research firm. "But with the new development control rules that is not happening."

Also, some developers especially in Mumbai and the National Capital Region are repositioning their properties and also planning to slash size of the apartments. "It is no secret that smaller, cheaper apartments generate faster cash flows than luxury apartments," said a real estate developer, who launched luxury apartments in Borivali some time back. "We are planning to convert our luxury project in North Mumbai to something that an average buyer can afford."

The trend of shifting back to smaller apartments is, however, more seen amongst cash-strapped developers. Industry experts say, that many more developers could be compelled to follow the plan, if the sales continue to remain lukewarm. Earlier in 2008, when the chips were down, many developers had followed the same trick to generate sales.